By Henry Howard. Why was it important for The Ryland Group to have Leslie Frécon, Charlotte St. Martin, and Roland Hernandez as directors? Was it their expertise, their gender, their ethnic background?

Yes to all of the above, says CEO R. Chad Dreier, who has made a point of broadening the scope of Ryland's board. He gave special consideration to its members' ability to relate to Ryland's buyers. It's a fact, he notes, that women make most of the decisions about buying a house and that half of Ryland's houses are sold to minorities. In the '90s, the company recruited its two female advisers, St. Martin, who is executive vice president of Loews Hotels, and Frécon, a former senior vice president at General Mills and co-founder of a venture capital fund. Last year, the company brought in Hernandez, a former chairman and CEO of Telemundo Group.

In this respect, companies like Ryland are in sync with the larger corporate community. A study of S&P 500 boards conducted by San Francisco-based executive search firm Spencer Stuart shows that companies looking for new directors last year wanted more diversity, including minority board members.

Indeed, Ryland and a number of other builders have increasingly been looking outside their own ranks, seeking to bring diversity to their advisory groups, not only demographic variation but also heavy hitters from other industries. For instance, KB Home added public-sector expertise two years ago by bringing in former San Antonio mayor and HUD secretary Henry Cisneros, who joined a group that included an executive of Occidental Petroleum and the chancellor of California's state university system. Lennar Corp.'s high-profile addition was Donna Shalala, now president of the University of Miami and former assistant secretary of HUD. Centex brought in American Standard Cos. chairman and CEO Frederic Poses and Wal-Mart CFO Thomas Schoewe. And in the '90s, the firm recruited financial adviser Barbara Alexander and Juan Elek, co-chairman of a Mexican investment banking firm.

Pulte's advisers include Debra Kelly-Ennis, a general manager at General Motors, and Bernard Reznicek, the director of special markets for Berkshire Hathaway's insurance group.

Board Makeup: Outside directors on the boards of S&P 500 companies (which average 11 members) outnumbered insiders three to one in 2001. Big builders' ratio is 1:1. (Source: Spencer Stuart, Inc.) Beazer Homes, too, has carefully crafted a truly diverse board, says CFO David Weiss. Last year, the builder added retail expertise with Maureen O'Connell, CFO for book retailer Barnes and Noble and a CPA with Big Six accounting experience. Meritage Corp. went after a combination of retail and management expertise when Peter Ax joined its board in 2000. Ax is former chairman and CEO of SpinCycle, consolidator and developer of coin-operated Laundromats.

There's added value in cross-pollination from these business liaisons. Ax, for example, is the exclusive financial adviser to Cleanwave, an Internet-based provider of laundry services owned by SpinCycle, and the chemical division of Royal Dutch/Shell.

Publicly held companies aren't the only ones for whom diversity is top of mind. Private firms are catching on too. "It gives us better decisions," says George Casey, president of Arvida's south Florida operations. Casey is a board member for two private builders, Robertson Brothers Co., in Michigan, and McStain Enterprises, in Colorado. "You get a much broader view," he says, "particularly of what's going on in other markets."

Outsiders Welcome

Going outside the company to capture that broader view is clearly a trend in the industry, and a positive one. Merrill Lynch analyst Joseph Sroka found the ratio of outside to inside members has shifted, even in the past five years. Since 1997, for example, Pulte's board has grown from 10 to 15 members. Its ratio of outsiders to company employees has shifted from roughly equal to twice as many outsiders. Similarly, Lennar had one outsider out of seven members five years ago; now, more than half of its 11-member board is from outside the company.

Changing Faces: Despite the apparent leveling off of the ratio of minorities and women serving on corporate boards, 20 percent of the companies surveyed by executive recruiter Korn/Ferry International, based in Los Angeles, say they intend to add women to their boards. Fifteen percent plan to add African-Americans, 5 percent are focusing on Latinos, and 4 percent seek Asians. (Source: Korn/Ferry International) Public builders' broadening reach is well-timed, given the scrutiny that now besets corporate America. "I think the composition of boards is becoming a focus," says Sroka, noting that while clearly beneficial to a company's operation, having more "independent" advisers gives investors a sense that there's an objective interest at work. Atlanta consultant Martin Freedland, of the Organizational Development Association, agrees. "I think it's really smart to bring in outsiders who really aren't beholden to the owners of the company, people who will question what you're doing and provide checks and balances." That's certain to sit well with investors these days. In coming years, other skill sets are likely to come into play, according to James Kristie, editor of Directors and Boards magazine. "I think we can look to boards to start trending younger, have more international flavor, and have fewer traditional CEO types and more senior operating and financial executives and technology-oriented executives."

—Henry Howard is based in High Point, N.C.

Published in BIG BUILDER Magazine, September 2002